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Oldies but goldies

26 February, 2019Hilary Cooper

Hilary Cooper explains why banks and fintech providers are starting to target older people and discusses how they can benefit from developing this niche market.

A generation ago, there was no digital banking. Notes, coins and cheques largely served for payments; paper statements and cheque stubs for budgeting; and leaflets, flyers or queued appointments for finding more complex products. Those are now the products of a disappearing world. In the third quarter of 2018, 57m interbank cheques were cleared in the UK, a fall of 16 per cent year-on-year, and the overall value fell by 12.3 per cent to £75bn. In the same quarter, the number of faster payments increased by 22.8 per cent to 511m, and the total value rose by 22.6per cent to £431bn.

Savvy about fintech

As this suggests, most millennials do not even recognise cheques and carry little or no cash. They, and the upcoming Generation Z, are also the most savvy about fintech. Banks and fintech providers know these people are the low-hanging fruit, unconstrained by institutional loyalty or notions about the ways things have always been done. Just as importantly, because the average age of a coder in a fintech start-up is 25 and the average age of the chief executive is 31, they are also the most familiar market.

Juicier pickings?

Perhaps, though, there might be even juicier pickings to be had higher up the demographic tree as we witness an unprecedented expansion in the population aged 65 or over – currently numbering 12m, or nearly one-fifth of the population. Those aged over 80 are the fastest-growing group, numbering well over 3m now and likely to reach 5m in the next 15 years. So, what, if anything, might fintech have to offer to them?

Digital use in general is increasing among older people. Nevertheless, more than a fifth of people aged 65-74, half of 75-84 year-olds and three-quarters of those aged over 85 say they never use the internet. Most surveys find that, when they do go online, older people are most interested in social contact – email, Skype or Facebook to keep in touch with family and friends – or in researching leisure activities and places to visit. Many will shop online, but far fewer are making the switch to online banking or other fintech applications, while use of smartphones for any financial purposes decreases sharply with age.

Digital skills gap

For those who are not using the internet, research shows that while many simply say they have no interest, others lack confidence, saying that it is too complicated for them or that they would not know where to start. This is supported by work done by Lloyds Banking Group looking at basic digital skills, which showed that 29 per cent of people aged 65 or over lacked all five of the basic skills tested. The findings were based on 4,000 face-to-face interviews. The five digital skills were: managing information – for example, using a search engine; communicating – that could be sending a personal message; transacting – for example, shopping online; problem-solving – for example, verifying online information; and creating – which could be filling in an application form.

Lloyds also found a significant correlation between low digital skills and low financial capability, although this was much less marked in older age groups. Banks have been trying to address this, with programmes such as Barclays’ Digital Eagles offering customers face-to-face support through initiatives such as “tea and teach” drop-in sessions. How well these will survive the acceleration of bank branch closures is a moot point. If increased digital use is the first stage to fintech adoption, EY, the professional services firm, has looked at the reasons why even those older people who are digitally active are still not using fintech. A fifth of internet users aged 65 to 74 said they were not aware of, did not need or did not want fintech products, rising to around a quarter of those aged 75 and above.

Security and accessibility

There is plenty of evidence that older people have quite specific concerns about the use of technology for financial matters – including worries about security and fraud as well as about not having the right skills or dexterity to manage small, fiddly buttons and devices. Fear of losing money as a result of scams or mistakes that cannot be retrieved weighs particularly heavily on older people. This may be entirely rational – it is well known that older people are far more heavily targeted by scammers.

Older people may also be more likely to make mistakes because of their lack of familiarity with technology and, for some, changes in physical and cognitive capabilities can amplify this risk. At the same time, fintech could be key to supporting older people who want to manage for longer on their own without having to give up their independence. When the trek to the bank or post office becomes too much, or the prospect of standing in a long queue is a non-starter, technology that can be used from the comfort of your armchair could be transformational.

Design with older people in mind

For that to work, both the software and the devices used to access fintech products must be designed with older people in mind – tailored to work for people who may have arthritic fingers, blurry eyesight and an overriding need for clarity and simplicity. Above all, fintech solutions must be trusted by older people so that they do not shun them for fear of security breaches or scams.

More and more people are retiring having used technology extensively in the workplace and having taken the first steps towards using fintech applications. This means the younger old – the post-war baby boomers – should be an attractive segment for fintech innovators that design applications tailored to their needs, with retirement and personal financial planning tools being obvious leading candidates.

Nevertheless, many of the oldest age groups may never relinquish their attachment to cash and to traditional ways of budgeting and managing financial affairs. But the most innovative fintech companies have found a workaround that allows them to target that segment. They know old people outsource their fintech needs to younger relatives or friends, who search online on their behalf for better utility, insurance or savings rates and quite commonly make internet transfers or set up new payments for them.

Hands-on family role

New products are starting to be developed that directly tap into this more hands-on role of family and others in older people’s lives. One US entrepreneur used his experience with his own father to develop a household financial management app to connect family members, linking everyone’s accounts – banks, credit cards, investments and mortgages – in a private network with key documents such as wills and powers of attorney added. EverSafe is another example from the US – marketed as “the first service that applies technology to combat financial exploitation”. It uses machine learning to understand someone’s normal financial activity and then monitors transactions for signs of exploitation or bad habits, alerting both the consumer and family members through apps and text messages.

Fintech start-ups may be being led by the young, but they are clearly learning from their elders as they seek out new niche markets in the fintech space.

Hilary Cooper is an associate director at The Finance Foundation think-tank and a former government economist. Her research on how older people manage their finances, When I’m 84 – Locking the Door on the Older Old: the challenge facing Britain’s banks, was published in 2016.